When expenses (or costs) are viewed in relation to changes in output three distinct expense categories emerge (see Chapter 10):
1 Fixed expenses---Those expenses that are constant in total, from month to month, gardless of fluctuations in output or volume of work done. Because any expense can change, this concept must be applied (a) to a realistic or relevant range of output and (b) in relation to a given set of conditions (management policies, time constraints, and characteristics of the operation). Examples of fixed expenses are salaries, property taxes, insurance, and depreciation (straight-line).